-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIaD0bLAx7TgjDanUC6aHc7E9mfxzUvYQmdwr6LxoHBJAdCpi/Yr+9N7JrwzN41B D1X/a69GIm0K477jkCndFA== 0000813895-98-000009.txt : 19980512 0000813895-98-000009.hdr.sgml : 19980512 ACCESSION NUMBER: 0000813895-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980511 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO POWER CORP CENTRAL INDEX KEY: 0000813895 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 042891371 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10573 FILM NUMBER: 98615905 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: PO BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 FORMER COMPANY: FORMER CONFORMED NAME: TECOGEN INC DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------------------ FORM 10-Q (mark one) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended April 4, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number 1-10573 THERMO POWER CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 04-2891371 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at May 1, 1998 ---------------------------- -------------------------- Common Stock, $.10 par value 11,822,963 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements ----------------------------- THERMO POWER CORPORATION Consolidated Balance Sheet (Unaudited) Assets April 4, September 27, (In thousands) 1998 1997 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 29,797 $ 19,347 Available-for-sale investments, at quoted market value (amortized cost of $4,043 and $9,129) 4,059 9,171 Accounts receivable, less allowances of $13,703 and $757 57,451 21,012 Unbilled contract costs and fees 7,260 4,856 Inventories: Raw materials 32,216 17,570 Work in process 4,384 1,077 Finished goods 6,126 1,237 Prepaid income taxes 4,652 3,118 Other current assets 2,744 219 -------- -------- 148,689 77,607 -------- -------- Rental Assets, at Cost 13,813 13,645 Less: Accumulated depreciation and amortization 3,591 3,369 -------- -------- 10,222 10,276 -------- -------- Property, Plant, and Equipment, at Cost 33,518 19,637 Less: Accumulated depreciation and amortization 8,961 9,046 -------- -------- 24,557 10,591 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,301 in fiscal 1997; Note 3) - 2,200 -------- -------- Other Assets 238 236 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 3) 155,295 7,082 -------- -------- $339,001 $107,992 ======== ======== 2PAGE THERMO POWER CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment April 4, September 27, (In thousands except share amounts) 1998 1997 ------------------------------------------------------------------------ Current Liabilities: Notes payable (Note 3) $ 822 $ - Accounts payable 34,985 9,622 Accrued payroll and employee benefits 8,751 3,133 Billings in excess of contract costs and fees 5,824 1,353 Accrued income taxes 3,343 1,620 Accrued warranty costs 4,958 3,435 Common stock of subsidiary subject to redemption ($18,450 redemption value) 18,215 - Accrued acquisition expenses (Note 3) 12,489 - Other accrued expenses 19,884 3,240 Due to parent company and affiliated companies 3,045 496 -------- -------- 112,316 22,899 -------- -------- Deferred Income Taxes 1,103 114 -------- -------- Long-term Obligations (includes $160,000 due to parent company; Note 3) 160,333 252 -------- -------- Common Stock of Subsidiary Subject to Redemption ($18,450 redemption value) - 18,059 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 30,000,000 shares authorized; 12,493,371 shares issued 1,249 1,249 Capital in excess of par value 55,392 55,283 Retained earnings 13,578 13,811 Treasury stock at cost, 670,408 and 578,124 shares (4,650) (3,636) Cumulative translation adjustment (330) - Net unrealized gain (loss) on available- for-sale investments 10 (39) -------- -------- 65,249 66,668 -------- -------- $339,001 $107,992 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO POWER CORPORATION Consolidated Statement of Operations (Unaudited) Three Months Ended ---------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ----------------------------------------------------------------------- Revenues $68,554 $28,825 ------- ------- Costs and Operating Expenses: Cost of revenues 51,809 23,331 Selling, general, and administrative expenses 13,410 4,433 Research and development expenses 2,659 627 ------- ------- 67,878 28,391 ------- ------- Operating Income 676 434 Interest Income 668 472 Interest Expense (includes $2,314 to related party in fiscal 1998; Note 3) (2,636) (4) ------- ------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest (1,292) 902 Provision (Benefit) for Income Taxes (82) 449 Minority Interest Expense 78 78 ------- ------- Net Income (Loss) $(1,288) $ 375 ======= ======= Basic and Diluted Earnings (Loss) per Share (Note 2) $ (.11) $ .03 ======= ======= Weighted Average Shares (Note 2): Basic 11,802 12,467 ======= ======= Diluted 11,802 12,472 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO POWER CORPORATION Consolidated Statement of Operations (Unaudited) Six Months Ended --------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ---------------------------------------------------------------------- Revenues $132,116 $ 57,611 -------- -------- Costs and Operating Expenses: Cost of revenues 97,058 47,864 Selling, general, and administrative expenses 26,845 8,213 Research and development expenses 4,388 1,271 -------- -------- 128,291 57,348 -------- -------- Operating Income 3,825 263 Interest Income (includes $180 from related party in fiscal 1998; Note 3) 1,257 923 Interest Expense (includes $3,489 to related party in fiscal 1998; Note 3) (4,061) (9) -------- -------- Income Before Provision for Income Taxes and Minority Interest 1,021 1,177 Provision for Income Taxes 987 642 Minority Interest Expense 267 156 -------- -------- Net Income (Loss) $ (233) $ 379 ======== ======== Basic and Diluted Earnings (Loss) per Share (Note 2) $ (.02) $ .03 ======== ======== Weighted Average Shares (Note 2): Basic 11,850 12,478 ======== ======== Diluted 11,850 12,488 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE THERMO POWER CORPORATION Consolidated Statement of Cash Flows (Unaudited) Six Months Ended ---------------------- April 4, March 29, (In thousands) 1998 1997 ----------------------------------------------------------------------- Operating Activities: Net income (loss) $ (233) $ 379 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,213 1,257 Provision for losses on accounts receivable 158 9 Minority interest expense 267 156 Increase in deferred income taxes (1,814) - Other noncash items 75 30 Changes in current accounts, excluding the effects of acquisition: Accounts receivable 973 (1,149) Inventories 9,851 75 Unbilled contract costs and fees 1,191 2,143 Other current assets (468) (351) Accounts payable (2,678) 515 Other current liabilities (6,030) 976 --------- --------- Net cash provided by operating activities 6,505 4,040 --------- --------- Investing Activities: Acquisition, net of cash acquired (Note 3) (148,854) - Sale of acquired business to related party (Note 3) 19,117 - Proceeds from sale and maturities of available-for-sale investments 5,011 6,000 Increase in rental assets (1,035) (570) Proceeds from sale of rental assets 619 944 Purchases of property, plant, and equipment (2,956) (1,508) Proceeds from sale of property, plant, and equipment 1,305 - Other (751) - --------- --------- Net cash provided by (used in) investing activities (127,544) 4,866 --------- --------- Financing Activities: Issuance of long-term obligation to parent company (Note 3) 160,000 - Decrease in short-term notes payable (Note 3) (27,823) - Repurchases of Company common stock (1,380) (2,034) Net proceeds from issuance of Company common stock 475 71 Repayment of long-term obligations (103) (27) --------- --------- Net cash provided by (used in) financing activities $ 131,169 $ (1,990) --------- --------- 6PAGE THERMO POWER CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Six Months Ended ---------------------- April 4, March 29, (In thousands) 1998 1997 ----------------------------------------------------------------------- Exchange Rate Effect on Cash $ 320 $ - --------- --------- Increase in Cash and Cash Equivalents 10,450 6,916 Cash and Cash Equivalents at Beginning of Period 19,347 29,852 --------- --------- Cash and Cash Equivalents at End of Period $ 29,797 $ 36,768 ========= ========= Noncash Activities (Note 3): Fair value of assets of acquired company $ 271,109 $ - Cash paid for acquired company (164,435) - Cash paid in prior year for acquired company (2,301) - --------- --------- Liabilities assumed of acquired company $ 104,373 $ - ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 7PAGE THERMO POWER CORPORATION Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements have been prepared by Thermo Power Corporation (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at April 4, 1998, the results of operations for the three- and six-month periods ended April 4, 1998, and March 29, 1997, and the cash flows for the six-month periods ended April 4, 1998, and March 29, 1997. The Company's results of operations for the six-month periods ended April 4, 1998, and March 29, 1997, included 27 weeks and 26 weeks, respectively. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of September 27, 1997, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1997, filed with the Securities and Exchange Commission. 2. Earnings (Loss) per Share During the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." As a result, all previously reported earnings per share have been restated; however, basic and diluted earnings per share equals the Company's previously reported earnings per share for the fiscal 1997 periods. Basic earnings (loss) per share have been computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted earnings per share for the fiscal 1997 periods have been computed assuming the exercise of stock options and their related income tax effect. The computation of diluted loss per share for the fiscal 1998 periods excludes the effect of assuming the exercise of stock options because the effect would be antidilutive due to the Company's net loss during those periods. 8PAGE THERMO POWER CORPORATION 2. Earnings (Loss) per Share (continued) Basic and diluted earnings (loss) per share were calculated as follows: Three Months Ended Six Months Ended -------------------- -------------------- (In thousands except April 4, March 29, April 4, March 29, per share amounts) 1998 1997 1998 1997 ------------------------------------------------------------------------ Basic Net income (loss) $(1,288) $ 375 $ (233) $ 379 ------- ------- ------- ------- Weighted average shares 11,802 12,467 11,850 12,478 ------- ------- ------- ------- Basic earnings (loss) per share $ (.11) $ .03 $ (.02) $ .03 ======= ======= ======= ======= Diluted Net income (loss) $(1,288) $ 375 $ (233) $ 379 ------- ------- ------- ------- Weighted average shares 11,802 12,467 11,850 12,478 Effect of stock options - 5 - 10 ------- ------- ------- ------- Weighted average shares, as adjusted 11,802 12,472 11,850 12,488 ------- ------- ------- ------- Diluted earnings (loss) per share $ (.11) $ .03 $ (.02) $ .03 ======= ======= ======= ======= As of April 4, 1998, the computation of diluted loss per share excludes the effect of assuming the exercise of 1,188,749 outstanding stock options, with exercise prices ranging from $6.40 to $17.53 per share, because the effect would be antidilutive. 3. Acquisition On November 6, 1997, the Company declared unconditional in all respects its cash tender offer for the outstanding ordinary shares of Peek plc (Peek). The aggregate cost to acquire all outstanding Peek ordinary shares, including related expenses, is estimated at approximately $166,736,000. The purchase price includes $2,301,000 that was paid for shares acquired in fiscal 1997, classified as "Long-term available-for-sale investments" in the accompanying September 27, 1997, balance sheet. The Company made final payments for the Peek ordinary shares outstanding in the second quarter of fiscal 1998. Peek develops, markets, installs, and services equipment to monitor and regulate traffic flow in cities and towns around the world. In addition, through its Measurement business, sold by the Company effective November 6, 1997, Peek developed and marketed field measurement products. 9PAGE THERMO POWER CORPORATION 3. Acquisition (continued) To finance the acquisition of Peek, the Company borrowed $160,000,000 from Thermo Electron Corporation pursuant to a promissory note due November 1999, and bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Subsequent to Peek's acquisition by the Company, the Company sold its Measurement business to ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument Systems Inc., effective November 6, 1997, for $19,117,000 in cash. Thermo Instrument is a majority-owned subsidiary of Thermo Electron. The components of the sales price for the Measurement business consisted of the net tangible book value of the Measurement business, cost in excess of net assets of acquired company, and the estimated tax liability relating to the sale. The cost in excess of net assets of acquired company was determined based upon a percentage of the Company's total cost in excess of net assets of acquired company associated with its acquisition of Peek, based on the 1997 revenues of the Measurement business relative to Peek's total 1997 consolidated revenues. The acquisition has been accounted for using the purchase method of accounting and its results have been included in the accompanying financial statements from the date of acquisition. The cost of the acquisition exceeded the estimated fair value of the acquired net assets by $150,710,000, which is being amortized over 40 years. Allocation of the purchase price was based on estimates of the fair value of the net assets acquired and is subject to adjustment upon finalization of the purchase price allocation. Based on unaudited data, the following table presents selected financial information for the Company and Peek on a pro forma basis, assuming the companies had been combined since the beginning of fiscal 1997. The results of Peek exclude the results of businesses sold by Peek prior to its acquisition by the Company and Peek's Measurement business, which was sold to ONIX effective November 6, 1997. Three Months Ended Six Months Ended ------------------ ----------------------- (In thousands except March 29, April 4, March 29, per share amounts) 1997 1998 1997 ------------------------------------------------------------------------ Revenues $ 60,767 $150,202 $169,346 Net loss (12,982) (912) (2,910) Basic and diluted loss per share (1.04) (.08) (.23) The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of Peek been made at the beginning of fiscal 1997. 10PAGE THERMO POWER CORPORATION 3. Acquisition (continued) In connection with the acquisition of Peek, the Company has undertaken a restructuring of the acquired business. The restructuring activities will primarily include reductions in staffing levels and abandonment of excess facilities. In connection with these restructuring activities, the Company established reserves totaling $15,101,000, primarily for estimated severance, excess facilities, and other exit costs associated with the acquisition, $2,822,000 of which was expended during the first six months of fiscal 1998. Amounts expended included operating losses of $1,682,000 at businesses the Company intends to sell, and the remainder primarily represented severance costs. Acquisition reserves were recorded as a cost of the acquisition of Peek in accordance with Emerging Issues Task Force Pronouncement 95-3 (EITF 95-3). As of April 4, 1998, unresolved matters related to the restructuring of Peek include completing the identification of specific employees for termination and locations to be abandoned or consolidated, as well as other decisions concerning the integration of the acquired businesses into the Company. In accordance with EITF 95-3, finalization of the Company's plan for restructuring Peek will not occur beyond one year from the date of acquisition. Any changes to estimates of these costs will be recorded as adjustments to cost in excess of net assets of acquired companies. Notes payable in the accompanying April 4, 1998, balance sheet includes $475,000 of outstanding borrowings under a line of credit at Peek. Borrowings under the line of credit are payable on demand and are denominated in British pounds sterling. As of April 4, 1998, the remaining amount available under the line of credit was 4,712,000 British pounds sterling. Borrowings under the line of credit bear interest at applicable London interbank market rates plus 45 basis points and are guaranteed by Thermo Electron. In addition, in connection with the acquisition of Peek, the Company assumed promissory notes, which were repaid during the first six months of fiscal 1998. Peek enters into forward contracts to hedge certain firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The purpose of Peek's foreign currency hedging activities is to protect Peek's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Because Peek's forward contracts are entered into as hedges against existing foreign currency exposures, there generally is no effect on the income statement since gains or losses on the customer contract offset gains or losses on the forward contract. 11PAGE THERMO POWER CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and ------------------------------------------------------------------------ Results of Operations --------------------- Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1997, filed with the Securities and Exchange Commission. Overview The Company's business is divided into four segments: Traffic Control, Industrial Refrigeration Systems, Engines, and Cooling and Cogeneration Systems. Through the Company's Peek subsidiary, acquired November 1997, the Traffic Control segment develops, markets, installs, and services equipment to monitor and regulate traffic flow in cities and towns around the world. Peek offers a wide range of products, including hardware, such as detectors, counter classifiers, traffic signals and controllers, and variable message signs, as well as traffic management systems that integrate these products to ease roadway congestion, improve safety, and collect data. Traffic management systems include variable message systems to advise drivers of accidents and other roadway hazards, traffic signal-timing systems that adapt continuously to changing conditions to minimize delays, video systems to give real-time analysis of traffic flows at intersections and on highways, and automatic toll-collection systems. The Company also offers high-resolution video equipment to aid police officers in capturing the information necessary to charge individuals with motor vehicle violations such as speeding and red light violations. The Company's results of operations and financial position for fiscal 1998 are expected to be affected significantly by the acquisition of Peek. Funding patterns of governmental entities, as well as seasonality, are expected to result in fluctuations in quarterly revenues and income of the Traffic Control segment. As a result of these factors, Peek has historically experienced higher sales and net income in the second and fourth calendar quarters and lower sales and net income in the first and third calendar quarters. Additionally, a portion of the Traffic Control segment's revenues result from the sale of large systems, the timing of which can lead to variability in the Company's quarterly revenues and income. The Company's operations resulted in a net loss for the second quarter of fiscal 1998, principally due to interest expense on borrowings to fund the acquisition of Peek exceeding the current quarter's operating 12PAGE THERMO POWER CORPORATION Overview (continued) income. Government funding patterns and seasonality resulted in a decrease in operating income in the second quarter of fiscal 1998, as compared to the first quarter of fiscal 1998. A significant portion of the Traffic Control segment's revenues originate outside the U.S., principally in Europe. Foreign divisions and subsidiaries principally sell in their local currencies and generally seek to charge their customers in the same currency as their operating costs. However, the Company's financial performance and competitive position can be affected by currency exchange rate fluctuations affecting the relationship between the U.S. dollar and foreign currencies. The Company reduces its exposure to currency fluctuations through the use of forward contracts. Since the operations of the Traffic Control segment are conducted principally in Europe, the Company's operating results could be adversely affected by capital spending and economic conditions in Europe. In addition, the Traffic Control segment has operations in Asia and revenues from exports to Asia. Asia is experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency-exchange and interest rates, and unstable stock markets. The Company's sales to Asia could be adversely affected by the unstable economic conditions in Asia. Through the Company's FES division, the Industrial Refrigeration Systems segment supplies standard and custom-designed industrial refrigeration systems used primarily by the food-processing, chemical, petrochemical, and pharmaceutical industries. NuTemp, Inc. is a supplier of both remanufactured and new industrial refrigeration and commercial cooling equipment for sale or rental. NuTemp's industrial refrigeration equipment is used primarily in the food-processing, chemical, petrochemical, and pharmaceutical industries, and its commercial cooling equipment is used primarily in institutions and commercial buildings, as well as by service contractors. The demand for NuTemp's equipment is typically highest in the summer months and can be adversely affected by cool summer weather. Within the Engines segment, the Company's Crusader Engines division manufactures gasoline engines for recreational boats; propane and gasoline engines for lift trucks; and natural gas engines for vehicular, cooling, pumping, refrigeration, and other industrial applications. The Cooling and Cogeneration Systems segment consists of the Company's Tecogen division and the Company's ThermoLyte Corporation subsidiary. Tecogen designs, develops, markets, and services packaged cooling and cogeneration systems fueled principally by natural gas for sale to a wide range of commercial, institutional, industrial, and multi-unit residential users. Certain large-capacity cooling systems are manufactured for Tecogen by FES, and the cogeneration systems are manufactured for Tecogen by Crusader. Tecogen also conducts research and development of natural gas-engine technology and on applications of thermal energy. ThermoLyte is developing and commercializing various gas-powered lighting products. 13PAGE THERMO POWER CORPORATION Overview (continued) The Company's revenues by industry segment are as follows: Three Months Ended Six Months Ended -------------------- -------------------- April 4, March 29, April 4, March 29, (In thousands) 1998 1997 1998 1997 ------------------------------------------------------------------------ Traffic Control $ 38,983 $ - $ 77,735 $ - Industrial Refrigeration Systems 18,387 15,639 35,396 34,785 Engines 6,484 7,916 11,608 13,323 Cooling and Cogeneration Systems 4,797 5,948 7,755 10,564 Intersegment sales elimination (97) (678) (378) (1,061) -------- -------- -------- -------- $ 68,554 $ 28,825 $132,116 $ 57,611 ======== ======== ======== ======== Results of Operations Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997 ------------------------------------------------------------------- Total revenues increased to $68,554,000 in the second quarter of fiscal 1998 from $28,825,000 in the second quarter of fiscal 1997, due to the inclusion of $38,983,000 of revenues from Peek, acquired November 1997. Peek's second quarter revenues are not necessarily indicative of future quarterly operating results due to funding patterns of governmental entities and seasonality. Industrial Refrigeration Systems segment revenues increased to $18,387,000 in fiscal 1998 from $15,639,000 in fiscal 1997, primarily due to greater demand for custom-designed industrial refrigeration packages at FES. Engines segment revenues decreased to $6,484,000 in fiscal 1998 from $7,916,000 in fiscal 1997, primarily due to decreased sales of marine-engine related products. Cooling and Cogeneration Systems segment revenues decreased to $4,797,000 in fiscal 1998 from $5,948,000 in fiscal 1997, principally due to decreased revenues from gas-fueled cooling systems. The gross profit margin increased to 24% in the second quarter of fiscal 1998 from 19% in the second quarter of fiscal 1997, primarily due to a 29% gross profit margin at Peek. The gross profit margin at Peek is not necessarily indicative of future quarterly operating results for the reasons discussed above. The gross profit margin for the Industrial Refrigeration Systems segment was unchanged at 21% in fiscal 1998 and 1997. The gross profit margin for the Engines segment decreased to 7% in fiscal 1998 from 10% in fiscal 1997, primarily due to a decrease in revenues. The gross profit margin for the Cooling and Cogeneration Systems segment increased to 22% in fiscal 1998 from 20% in fiscal 1997, primarily due to a decrease in sales of lower-margin gas-fueled cooling systems. 14PAGE THERMO POWER CORPORATION Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997 ------------------------------------------------------------------- (continued) Selling, general, and administrative expenses as a percentage of revenues increased to 20% in the second quarter of fiscal 1998 from 15% in the second quarter of fiscal 1997, principally due to relatively higher selling, general, and administrative expenses as a percentage of revenues at Peek. Research and development expenses increased to $2,659,000 in fiscal 1998 from $627,000 in fiscal 1997, due to the inclusion of $2,136,000 of research and development expenses at Peek. Interest income increased to $668,000 in the second quarter of fiscal 1998 from $472,000 in the second quarter of fiscal 1997, principally due to an increase in average invested balances. Interest expense increased by $2,632,000 due to borrowings from Thermo Electron to finance the acquisition of Peek (Note 3) and the inclusion of $319,000 of interest expense at Peek. The effective tax rate decreased to 6% in the second quarter of fiscal 1998 from 50% in the second quarter of fiscal 1997. The Company recorded a tax benefit in fiscal 1998 at an effective tax rate below the statutory federal income tax rate primarily due to the relative impact of nondeductible amortization of cost in excess of net assets of acquired companies on the Company's pretax loss for the quarter. The effective tax rate for fiscal 1997 exceeded the statutory federal income tax rate primarily due to an increase in the valuation allowance for net operating loss carryforwards and other tax assets of the Company's ThermoLyte subsidiary, and the impact of state income taxes. The effective tax rate in fiscal 1998 was substantially lower than the effective tax rate in fiscal 1997 principally due to the impact of nondeductible amortization of cost in excess of net assets of acquired companies relating to the Peek acquisition. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products, except those of Peek, are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. The Company is in the process of assessing the impact of the year 2000 problem on the internal information systems and current products of Peek. At this time the Company is unable to determine the materiality of the year 2000 problem at Peek. There can be no assurance that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not 15PAGE THERMO POWER CORPORATION Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997 ------------------------------------------------------------------- (continued) completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997 ----------------------------------------------------------------------- Total revenues increased to $132,116,000 in the first six months of fiscal 1998 from $57,611,000 in the first six months of fiscal 1997, due to the inclusion of $77,735,000 of revenues from Peek, acquired November 1997. Industrial Refrigeration Systems segment revenues increased to $35,396,000 in fiscal 1998 from $34,785,000 in fiscal 1997, primarily due to revenue improvement at FES, resulting principally from greater demand for custom-designed industrial refrigeration packages, offset in part by lower demand for standard industrial refrigeration packages. Engines segment revenues decreased to $11,608,000 in fiscal 1998 from $13,323,000 in fiscal 1997, primarily due to decreased sales of marine-engine related products. Cooling and Cogeneration Systems segment revenues decreased to $7,755,000 in fiscal 1998 from $10,564,000 in fiscal 1997, principally due to decreased revenues from gas-fueled cooling systems. The gross profit margin increased to 27% in the first six months of fiscal 1998 from 17% in the first six months of fiscal 1997, primarily due to a 32% gross profit margin at Peek. The gross profit margin for the Industrial Refrigeration Systems segment increased to 21% in fiscal 1998 from 19% in fiscal 1997, primarily due to manufacturing efficiencies at FES. The gross profit margin for the Engines segment was unchanged at 7% in fiscal 1998 and 1997. The gross profit margin for the Cooling and Cogeneration Systems segment increased to 21% in fiscal 1998 from 20% in fiscal 1997, primarily due to a decrease in sales of lower-margin gas-fueled cooling systems. Selling, general, and administrative expenses as a percentage of revenues increased to 20% in the first six months of fiscal 1998 from 14% in the first six months of fiscal 1997, principally due to relatively higher selling, general, and administrative expenses as a percentage of revenues at Peek. Research and development expenses increased to $4,388,000 in fiscal 1998 from $1,271,000 in fiscal 1997, due to the inclusion of $3,290,000 of research and development expenses at Peek. Interest income increased to $1,257,000 in the first six months of fiscal 1998 from $923,000 in the first six months of fiscal 1997, principally due to an increase in average invested balances. Interest expense increased by $4,052,000 due to borrowings from Thermo Electron to finance the acquisition of Peek (Note 3) and the inclusion of $564,000 of interest expense at Peek. The effective tax rate increased to 97% in the first six months of fiscal 1998 from 55% in the first six months of fiscal 1997. The effective tax rate for fiscal 1998 exceeded the statutory federal income tax rate primarily due to the relative impact of nondeductible amortization of cost in excess of net assets of acquired companies on the 16PAGE THERMO POWER CORPORATION First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997 ----------------------------------------------------------------------- (continued) Company's pretax income for the first six months of fiscal 1998. The effective tax rate for fiscal 1997 exceeded the statutory federal income tax rate primarily due to an increase in the valuation allowance for net operating loss carryforwards and other tax assets of the Company's ThermoLyte subsidiary, and the impact of state income taxes. The effective tax rate increased from fiscal 1997 to fiscal 1998 principally due to the impact of nondeductible amortization of cost in excess of net assets of acquired companies relating to the Peek acquisition. Minority interest expense increased to $267,000 in the first six months of fiscal 1998 from $156,000 in the first six months of fiscal 1997 due to minority interest expense on Peek's earnings relating to Peek shares tendered after November 6, 1997, through January 16, 1998. As of January 16, 1998, the Company had acquired all of the Peek outstanding ordinary shares. Liquidity and Capital Resources Consolidated working capital was $36,373,000 at April 4, 1998, compared with $54,708,000 at September 27, 1997. Included in working capital are cash, cash equivalents, and available-for-sale investments of $33,856,000 at April 4, 1998, compared with $28,518,000 at September 27, 1997. Of the $33,856,000 balance at April 4, 1998, $14,644,000 was held by ThermoLyte, and the remainder was held by the Company and its wholly owned subsidiaries. At April 4, 1998, $14,822,000 of the Company's cash and cash equivalents was held by its foreign subsidiaries. While this cash can be used outside of the United States, repatriation of this cash into the United States would be subject to a United States tax. Additionally, working capital at April 4, 1998, was reduced by common stock of subsidiary subject to redemption of $18,215,000, which represents ThermoLyte's common stock, redeemable in December 1998 or 1999, the redemption value of which is $18,450,000. During the first six months of fiscal 1998, $6,505,000 of cash was provided by operating activities. Cash provided by the Company's operating results was improved by a reduction in inventories of $9,851,000, offset in part by a reduction in other current liabilities of $6,030,000. The decrease in inventories resulted primarily at Peek, principally due to the timing of shipments. The decrease in other current liabilities also resulted primarily at Peek, principally from a reduction in accrued acquisition expenses (Note 3) and tax and dividend payments made during the first six months of fiscal 1998. During the first six months of fiscal 1998, the Company's primary investing activities, excluding available-for-sale investments activity, included the acquisition of Peek for $148,854,000 in cash, net of cash acquired, and the sale of Peek's Measurement business for $19,117,000 in cash (Note 3). In addition, the Company expended $3,991,000 for purchases of rental assets and property, plant, and equipment, and received 17PAGE THERMO POWER CORPORATION Liquidity and Capital Resources (continued) $1,924,000 in proceeds from the sale of rental assets and property, plant, and equipment. During the remainder of fiscal 1998, the Company expects to make capital expenditures for the purchase of rental assets and property, plant, and equipment of approximately $11,500,000, including approximately $500,000 for software and hardware that is year 2000 compliant. In April 1998, ThermoLyte signed a non-binding letter of intent to acquire the outstanding stock of Optronics, Inc. and Optronics International, Inc. for approximately $5.1 million in cash and the assumption of certain liabilities. The proposed acquisition is subject to certain conditions, including completion of due diligence and negotiation of a definitive agreement, as well as approval by the Company's and ThermoLyte's boards of directors and the stockholders of the potential acquiree. The final terms of such acquisition have not been determined, and there can be no assurance that the acquisition will be completed. The Company's financing activities provided $131,169,000 of cash in the first six months of fiscal 1998. The Company borrowed $160,000,000 from Thermo Electron to finance the acquisition of Peek (Note 3), repaid $27,823,000 of short-term borrowings, and expended $1,380,000 of cash for the purchase of Company common stock. The Company's $160,000,000 promissory note to Thermo Electron is due in November 1999. Thermo Electron has indicated its intention to require that the Company's indebtedness to Thermo Electron be repaid only to the extent the Company's liquidity and cash flow permit. The Company believes its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future, except for repayment of the promissory note to Thermo Electron as discussed above. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ On March 13, 1998, at the Annual Meeting of Shareholders, the shareholders elected six incumbent directors to a one-year term expiring in 1999. The directors reelected at the meeting were: Marshall J. Armstrong, J. Timothy Corcoran, Peter O. Crisp, John N. Hatsopoulos, Donald E. Noble, and Arvin H. Smith. Mr. Armstrong received 11,680,616 shares voted in favor of his election and 10,126 shares voted against. Messrs. Corcoran, Hatsopoulos, and Smith each received 11,681,942 shares voted in favor of his election and 8,800 shares voted against. Mr. Crisp received 11,681,892 shares voted in favor of his election and 8,850 shares voted against. Mr. Noble received 11,681,392 shares voted in favor of his election and 9,350 shares voted against. No abstentions or broker nonvotes were recorded on the election of directors. Item 6 - Exhibits ----------------- See Exhibit Index on the page immediately preceding the exhibits. 18PAGE THERMO POWER CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of the 11th day of May 1998. THERMO POWER CORPORATION Paul F. Kelleher --------------------------- Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos --------------------------- John N. Hatsopoulos Chief Financial Officer and Senior Vice President 19PAGE THERMO POWER CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 27 Financial Data Schedule. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS OCT-03-1998 APR-03-1998 29,797 4,059 71,154 13,703 42,726 148,689 33,518 8,961 339,001 112,316 333 0 0 1,249 64,000 339,001 132,116 132,116 97,058 97,058 4,388 158 4,061 1,021 987 (233) 0 0 0 (233) (.02) (.02)
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